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Adelaide - Vendors Terms, Options & And/or nominee clause

Discussion in 'General Property Chat' started by Melbpositivegeared, 13th Jun, 2016.

  1. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Hey guys,
    I'm looking at getting into the Adelaide market in the next 6 months.
    My experience to date has been mostly in Vic - I'm wondering if there's anything I should know about legals, stamp duty or the creative process when using options or terms in Adelaide.

    Corina
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Hi Corina

    In Adelaide you're allowed to do and/or nominee without the extra stamp duty hit but you do have to have your trust created (assuming buying in a trust) prior to entering contract. Note that you can't do vendor finance here (not sure if you were planning to or not).

    I copied and pasted the standard purchase procedure off our website:

    0. Arrange finance through your preferred mortgage broker

    1. Inspect the property and then call the agent afterwards to negotiate a price you can agree on.

    2. Some agents will make you fill out an offer form and if accepted go to sales contract, some agents go directly to sales contract which you sign at the bottom and initial all pages and send back to them. On the conditions section, make it subject to finance if you need (but not building and pest, see step 5). Sometimes it’s best not to make subject to finance too, so that your offer appears stronger than other peoples but only do this if you’re very sure you can get finance.

    3. If the vendor accepts it, they’ll sign the same contract and scan/copy it back to you. You’ll need to give this to your conveyancer and mortgage broker (We can recommend professionals in these fields if you need)

    4. The agent will send you whats called a Form 1. This is a documentation package of all the title searches, council/water information, encumbrances, easements etc. You need to read & sign this and return it to him. This is similar to what conveyancers do in other states but here the sales agent provides it.
    5. You have a cooling off period of 2 clear full business days from when he sends you Form 1. This is when you do your Building and Pest inspection. If it comes back bad, then you can pull out of the deal utilising the cooling off period at no cost if you wish. For this reason, you don’t need to put it as a conditional in your contract, because you get to exit anyway. Note that the vendor does not have a cooling off period, only the buyer does and for this reason gazumping is not possible here.

    6. When you’re willing to proceed, ask the agent for his bank details so you can pay deposit and get a receipt. Deposit can be any amount and is not a fixed percentage like in NSW. In the past I’ve used $5k, $10k, etc. Some will ask for enough to cover their sales commission, in case their vendor doesn’t pay but I think its silly since its just going to sit in their trust account anyway.

    7. Organise finance with your mortgage broker

    8. Wait til settlement (42 days is common, but can be 30, 60 or 90 depending on what you negotiate). Hopefully during this time your PM can organise tenants to move in or work to be done to the property.
     
    Corkey likes this.
  3. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    SA is fairly similar to Victoria - a bit more forgiving in some respects.

    Normal terms:

    Settlement: 30 days minimum, 42 norm, 90+ days rare longer term
    Deposit: low value properties = $1,000, auction = 5-10% upfront or fixed amount, higher value properties = $10k-10% deposits paid to agents trust account
    Common Conditions: Subject to finance, Subject to Satisfactory Building and Pest - falling out of favour due to cooling off period (read below)

    In South Australia you receive a set of documents called the Form 1, this contains any pertinent info for the purchase including searches. Any contract signed is NOT locked in by either party until the Form 1 is issued to the purchaser. Until that time either party can exit contract without any justification. Likewise for the first two business days after signing the buyer has cooling off rights and can exit contract without penalty.
     
  4. Xenia

    Xenia Adelaide Property Manager Business Member

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    How do you plan to use options or creative terms Corina?

    Where are you buying?
    I've purchased properties using option contracts - happy to help if I know what you are looking for.

    Standard contracts are easy peasy, creative finance not so easy is SA
     
    Elives likes this.
  5. Elives

    Elives Well-Known Member

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    Interesting! would you mind sharing your option deal?
     
  6. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Thanks so much for your detailed response. When you say "Can't do vendor finance" what specifically do you mean?

    "Vendors Finance" is a very loose term thrown around a lot. Surely one entity can lend to another?

    Can you do a vendors carry back mortgage? Long term settlement (2-5 years)? Developer finance? Rent to own (and if so what set-ups work / don't work). And then there's purchasing on an option (which you implied is allowed) or an installment contract with an our clause (ie - the clause "provided the property is work x in 3 years".)

    And with any of these set-ups how do stamps effect this?

    I'm really looking for a way to leverage myself as much as possible in Adelaide. I have some funds coming in the next few years and I'm looking to get in now to take advantage of the steady market, as I personally believe it will strengthen over the next 2-5 years and become more of a sellers market than it is right now
     
  7. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Hi Xenia,

    I did really well in Melb purchasing my first place on vendors terms, with it settling once the property had risen in value by 33%!

    If I could have my time again I would have replicated this 10 times and be retired now!

    I see an opportunity in Adelaide - I don't anticipate a 33% rise in a 2 year time-frame - However I do believe Adelaide will become more of a sellers market over the next 2-5 years and believe it will see some strong growth.

    I'm really trying to find out what options are available to me for holding property that's not yet in my name and how I could leverage the opportunity I believe is coming to the market.

    I'd like to have a bit of a blanket letter-drop approach across some strong areas. (I'm happy to take the gamble on a few of them being ones I am legally required to settle on as I have some cash coming, however I also want to limit this risk by using options on some. Also - My goal is as little cash now as possible... So anything that triggers stamps being paid now is out of the question. Anything that allows me to "on-sell" the opportunity to another as apposed to settle on it myself lessens my risk and allows me to be involved in more opportunities too)

    I'd love to hear a bit more about what you've done and why.
     
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  8. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Some typo's in there!! What I mean is *or an installment contract with an out clause (ie - the clause "contract conditional upon the property being worth x at time of settlement".)

    I've seen this used to delay stamps before - as in some states stamps are due upon the contract becoming "unconditional" - This ensures it remains conditional until settlement date and offers the purchaser a little bit of market protection
     
  9. MTR

    MTR Well-Known Member Premium Member

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    Great, I would love to hear more about how this strategy works for you in Melb, very interesting, I don't know anyone who uses this strategy
    Where in Melb? been a very good market
     
  10. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Mine is in a tiny suburb called "Notting Hill" in the City of Monash (touching Glen Waverley, Mount Waverley, Clayton & Mulgrave)

    Mine wasn't an attempt to grab capital gains - I thought the market would do well but didn't anticipate how well!

    I bought this way as I didn't have much of a deposit saved up and recognised that the required deposit would take years to save up - and that property would increase faster than I could save.

    I renovated it, lived in it (To get FHOG) and now lease it out as a rooming house. It has strong development potential as well (Which has really pushed the value up).

    I bought using a standard contract with a 2 year settlement and agreed to pay the owner a little more than what it was worth at the time, as well as "rent" across the 2 years that was higher than what they were currently receiving.

    It was always about creating a win/win situation. Seller got more than they wanted and a better rent. And I got one hell of an opportunity to start my journey!
     
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  11. MTR

    MTR Well-Known Member Premium Member

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    I have heard of this before, find it interesting that you can actually find people who will take up an option, I would have thought many would be very suspicious, I guess the attraction is the $ offer above market value.

    Glen Waverley, Mt Waverley East in general been top performers in Melb.
    I have been playing in the Melb market, been a brilliant market, however its had significant growth in general.
     
  12. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Yea it's been almost imposible to go wrong in Melb and Syd across the past 3 years... now obviously being a little different.

    I approached 3 opportunities, the first one said yes however a "straight forward" offer came in on the day before the seller was due to sign, the second said "no way" and the third was my purchase. It depends what the motivation behind the sale is, and if it's in a buyers market

    I also did this via Real Estate Agents - I had a $13K deposit and $7K FHOG coming my way - So that's the agent paid off and on your side. (Some of them anyway). This time I'm wanting to do it myself without an agent
     
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  13. MTR

    MTR Well-Known Member Premium Member

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    Brilliant

    Did you actually go to any seminars to learn how to do this

    Basically the property goes up and this is how you fund the finance? I am clueless with this strategy, trying to work it out
     
  14. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Yea I've done quite a few - I'm a student of a number of different speakers.

    I would never rely on capital growth to fund the deposit - Capital growth is never a given. I renovated and made additional payments off of the property to ensure I was ready to settle at the end of the 2 years (Not everything went to plan and I almost got myself into trouble with APRA rules and work circumstances changing - but it worked out well in the end, and I always had the option of selling had it turned into a disaster).

    There's a lot more complication around lending with this kind of setup - don't imagine being able to borrow any more than 80% when you're ready to settle (LMI doesn't take too well to refinancing a vendors terms arrangement) - Also don't anticipate a valuer recognising the full increased value of the property on the day of settlement (They're more interested in the contract price - even if 2 years has passed).

    Also be prepared for what could happen if the property actually goes backwards in value - If you have a binding contract you will be responsible for any shortfall on settlement day.

    If I take on a number of these at the same time and leverage myself as much as possible, I would ensure that the majority of the properties have exit clauses, whether this be in the form of the ability to on-sell the deal, the option to settle (or not settle) or an addition to further delay settlement.

    Overall I think it's an amazing strategy and I want to really take on a more aggressive approach, I just need to understand the rules and regulations around doing this in Adelaide!
     
  15. Elives

    Elives Well-Known Member

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    33% congrats! sounds very interesting. to get 2 years settlement how much more did you offer? etc if it was listed 350k did you pay the listing price or how much more? also which seminar educator are you now students of if you don't mind me asking (you can pm me if you'd like).
     
  16. Xenia

    Xenia Adelaide Property Manager Business Member

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    Hi Elives
    We land bank in the northern Adelaide suburbs using option contracts instead of purchasing outright.

    We only purchase properties to buy and hold in western suburbs or within 5-10 k of the city.

    Any speculation on property on higher risk areas is only with option contracts or a quick Reno and sell.

    We pay $1 for the option contract so no risk if speculation is wrong
     
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